The Bank of Canada (BoC) is walking a careful line. In a special September check-in with roughly 340 business leaders, the central bank heard that the breakdown in Canada–US trade talks on August 21st has already weighed on export orders and rolled back some of the optimism seen in early in the third quarter. But the BoC was quick to frame it as “a moderation rather than a fundamental shift,” noting that its regular third-quarter Business Outlook Survey—mostly conducted before the talks collapsed—still showed sentiment improving.
What the surveys show
The more market-moving message came on prices. Across its business and consumer surveys, the BoC saw inflation expectations drift higher, with companies pointing to rising input costs and plans to lift selling prices. Governor Tiff Macklem acknowledged that the recent pickup in headline inflation is mainly about pricier energy so far, but he left the door open to raising rates if higher costs start spreading more broadly.
That nuance matters because the BoC’s own research suggests that when people and businesses expect higher inflation, those beliefs can show up in price tags and wage negotiations, making inflation harder to cool. Even if the first spark came from energy prices, the bank worries about second-round effects.
Why traders watch these surveys
Money markets are already leaning toward a hold at the BoC’s next decision on October 28th, but they’re keeping a December increase in play. That’s why every new read on inflation expectations before then—and ahead of December—can ripple through borrowing costs.
For households, the transmission works through two channels. Variable-rate mortgages and home equity lines of credit (HELOCs) typically move with lenders’ prime rates, which tend to follow the BoC’s policy rate. Fixed-rate mortgages, on the other hand, are more tied to government bond yields, and those yields can move as markets adjust their view of where BoC rates are headed.
So even if the BoC stands pat on October 28th, each new inflation-expectations data point can still affect fixed-rate pricing immediately, and if a hike actually arrives, prime rates would follow.
What it means for investors
For everyday investors, the key takeaway is that the BoC is watching inflation expectations closely. If they continue to drift higher, the bank may feel compelled to tighten policy even if the initial driver was energy. That would have broad implications for bond yields, mortgage costs, and the Canadian dollar.
It’s also a reminder that trade tensions, while not breaking confidence, are adding a layer of uncertainty. Businesses are more cautious about export orders, and that could show up in future earnings reports. Investors should keep an eye on how companies describe their pricing power and input costs in the coming weeks.
For a broader view of how inflation is moving, see our recent coverage of Canada's inflation ticking up to 3.1%. And for a look at how markets are reacting to other global trade and earnings news, check out tech leading futures higher and New Zealand shares slipping.
Ultimately, the BoC’s message is one of caution, not alarm. Confidence is dented, but not broken. The real test will come in the months ahead, as businesses and households decide whether higher energy prices are a blip or the start of a broader trend.
